Volatility expected as US Fed meets

Local shares are expected to see a decline as investors await the outcome of this week’s US Federal Reserve meeting, analysts said.

Alexander Adrian Tiu, equity analyst at AB Capital Securities Inc., said that despite all the worries of the rate hike possible after the Fed meeting on December 15 and 16, he said that there will be potential boost in equities trading before the year ends.

“Outlook is volatile but we may see some bounce at the end of the year,” said Alexander Adrian Tiu, equity analyst at AB Capital Securities, Inc.

The Federal Open Market Committee will be meeting from December 15 to 16 and the expected outcome is the first policy rate hike in nearly a decade.

Joylin Telagen, research analyst at IB Gimenez Securities Inc., said the index could go to as low as 6,600 this week. In the event of a postponed Fed hike, the Philippine Stock Exchange Index (PSEi) could see a Christmas rally.

“But we still have to wait and see for the Fed,” Telagen said.

Jason Escartin of online brokerage 2TradeAsia.com mirrored this view.

“Consensus show participants are expecting the Fed to adopt a 25-basis point (bps) rate hike during their policy meeting on December 15 to 16, in what has been dubbed as the most-telegraphed policy action in recent history, Escartin said.

“What will be underscored overall is the pace of successive increases that will be taken, especially for first half of 2016,” he added.

“Expectations on the trajectory of rate hikes would reflect in regional central bankers’ moves … Given the usual lagged effect of global measures, local monetary authorities would likely remain on status quo due largely to tame inflation,” Escartin continued.

“While heightened monitoring is expected for US inflation & labor data, increased volatility is in store for currencies and fixed income markets, pending also the decision of Britain to exit from the European Union,” he said.

The United Kingdom is scheduled to hold a referendum on whether to leave the EU in 2017 and analysts have warned that this would have wide economic consequences.

Escartin suggested that investors wait “before re-positioning on weakness” brought about by a Fed rate hike.

On Friday, the Philippine Stock Exchange index (PSEi) dropped by 1.26 percent or 85.59 points to 6,735.01, while the wider All Shares index also declined by 0.97 percent or 38.17 points to 3,894.86.